The World Bank Group announced that in order to achieve the 2030 Agenda, “financing needs to move from “billions” in official development assistance to “trillions” in development investments of all kinds. Public and private financing is needed to succeed. Persuading the private sector to join and operate domestically and internationally under the principles of the 2030 Agenda is a fundamental task. Already, a growing number of companies have signed up to the UN Global Compact and other initiatives that encourage principles of responsible investment and alignment with the Sustainable Development Goals (SDGs). Nonetheless, the share of investments subject to the above considerations is small compared to global capital markets.
The Addis Ababa Action Agenda (a global framework for financing sustainable development which was agreed by all UN members states in 2015, and which contains more than 100 concrete measures) addresses all sources of finance, and covers cooperation on a range of issues including technology, science, innovation, trade and capacity building. The agenda mentions “private sector” as many times as it mentions “international cooperation”.
This exemplifies the growing consensus that delivering on the SDGs requires a stronger engagement of the private sector. However, investors are often reluctant to work in developing countries because of perceived risks. As a result, cost and risk-sharing public mechanisms have become an important means to leverage private finance for frontier markets.
These new priorities imply challenging new questions for policymakers, including:
- Are current approaches effective and sufficient?
- What has been the experience so far?
- What should be the role of development finance institutions (DFIs) to incentivize the private sector and mitigate risk?
- Are the risk-sharing and mitigation instruments in place adequate, do they need to be scaled up, or do we need to explore new contracts and incentive structures?
- How risk-sharing instruments (including equity stakes, concessional debt financing, and guarantees) that DFIs is used to ‘crowd in’ investment and mitigate risk for the private sector?
- How can institutions investigate new and different ways to use public development capital to work with the private sector?
Though the role of institutions in fostering economic transformation and development is widely acknowledged, an increasing focus has been on the politics behind institutional change. Issues of governance, politics, and power are no longer a sideshow; they constitute a central element in the field.
While the political dimension of institutional change is increasingly taken into account by policy-makers through political economy analysis, it remains a challenge for donors to engage with local institutions and government and thus far has mainly been seen as a contextual element for multi-stakeholder partnerships. As a result, we often see regulated markets where standards are not implemented because of the lack of interests from local institutions and/or actors. Rather than trying to addressing this through traditional technical assistance to governments, multi-stakeholder partnerships may offer an alternative way to bring about change.
The link between multi-stakeholder partnerships’ context and their impacts is often underestimated and overlooked. Partnerships are extraordinarily vulnerable to context and this is often overlooked in the focus on being ‘global’.” If geography, history and cultures matter, the key contextual factors affecting partnership are the economic, political and societal institutions. But this influence goes two ways: while hugely affected by institutions, multi-stakeholder partnerships may also offer a way to promote an institutional change.
Development Connect has vast global experiences in managing and facilitating community, public, private partnerships offering interesting alternatives to working around institutions in the different service delivery and agricultural sectors. By partnering with, and using local private sector interests, we support clients to tackle the institutional blockages that are at the heart of the sector’s systemic weaknesses. This way, partnership mechanisms are contributing to providing a bottom-up approach to address systemic issues in complex institutional environments.